UK Fossil Fuel Subsidies

There has been much discussion in the press and blogosphere recently about an OECD report on the ‘levels of subsidy’ enjoyed by fossil fuels worldwide, broken down by country.

The report, which counts tax breaks as a form of subsidy, calculates subsidies to fossil fuels in the UK at around £3.6 billion in 2010. Most of this ‘subsidy’ comes from a preferential VAT rate of 5% on domestic energy supplies, as opposed to the normal 20% for goods. Other tax breaks include relief on certain ‘economically marginal’ North Sea fields. North Sea oil and gas is heavily taxed and raises a large income for the Treasury. This is justifiable as the oil and gas are UK national resources and belong to the UK rather than to the oil and gas extraction companies. The Treasury’s policy has been to adjust the tax regime so that extraction remains profitable whilst maximising income to the Treasury.

The Guardian has calculated the level of subsidy for renewable energy at £1.4 billion for that year. Renewable energy subsidies are not largely a result of tax breaks, but a result of an obligation on energy companies to invest in renewable energy through various schemes such as the Renewables Obligation and the Feed In Tariff. As they do not come from the public purse, renewables subsidies can be regarded as an additional tax on energy companies. This impacts on profits but some have argued that the cost is automatically passed onto the customer. The profit regime of energy companies however remains opaque.

Energy companies are not necessarily oil companies, but for the sake of argument let’s say this leaves a net difference of around £2.2 billion in subsidy for fossil fuel industries.

Some commentators argue that this calculation is not correct as tax relief on an already very high tax regime cannot be counted as a true subsidy. Normally this reasoning would be correct, but in this case fails to take into account that North Sea oil and gas reserves are property of the UK and not property of the oil and gas companies. Failure to recognise this fact would be to provide a subsidy to the oil and gas companies of free oil and gas, both very valuable exhaustible resources. In contrast, wind and sun (and wave and tidal energy) actually are free, and inexhaustible.

This difference is key. The costs of renewable energy are the equipment used to harvest these free fuels (i.e. wind turbines and solar panels), and research and development. These costs are likely to naturally fall over time, and indeed have been doing so, even as efficiency rises. Conversely, as the finite reserves of fossil fuels become depleted, the market price of energy derived from fossil fuels will rise, as it is indeed doing, along with the costs of extracting them as the ever more difficult resource deposits are tackled. Tax relief given by the Treasury is based on the costs of extraction of ‘difficult’ fields – the Treasury however has no control over international oil and gas prices, which remain at record highs despite worldwide economic recession. In theory, the rising market price itself will eventually make economically marginal oil and gas fields viable. So why does the Treasury need to give additional tax relief? Simply, to bring the exploitation of these fields forward in time. The subsidy is being paid by the future UK economy for the benefit of the current government.

The same will apply to the “generous” tax regime that the Chancellor has said he will put in place for the exploitation of ‘shale gas’.

Wind and sun however will continue to be free into the foreseeable future. Subsidies given now to improve and bring down the cost of the harvesting technologies will result in permanently lower energy prices.

Green’ groups have seized on these figures as evidence that fossil fuels have an unfair market advantage, even without considering the contribution of additional carbon dioxide emissions to the increasing amounts of heat energy being held in the Earth’s atmosphere, resulting in a more energised biosphere and resultant climate impacts, as forecast by climate scientists.

Of course, climate science is in its relative infancy and it is notoriously difficult to predict localised weather, so the amount of environmental and economic damage resulting from the burning of fossil fuels is difficult to quantify. Lord Stern estimated in his review that the world could lose around 10% of GDP through the effects of climate change, with a 50C rise in global temperatures (currently predicted by the World Bank, amongst others) – around £243 billion annually if translated to the UK. If correct, this economic cost represents a subsidy to the fossil fuel industry as the industry does not have to pay to rectify the environmental damage its pollution causes. Of course, this figure for the UK is the cost of global emissions, not just UK emissions. UK emissions are about 1.75% of the world total, so we would be responsible for around £4.2 billion of that annual loss.

One indicator of whether or not climate change is actually having an economic impact is the reinsurance industry. In many US states, insurers must disclose to financial regulators their exposure to climate change related risks. Here in the UK, the government is currently in difficult negotiations with insurers to try to retain insurance for domestic homes at risk of flooding. 2012 has been one of the worst years in living memory for flooding.

So whilst statistics about individual storms, droughts etc are debateable and contentious, the insurance industry whose business it is to know about risk and put a price on it, is raising costs. These higher insurance costs also represent a subsidy to the fossil fuel industry.

Support for the fossil fuel industry could be a risky investment for the UK, according to the Bank of England. Tax breaks now to encourage the development of marginal oil and gas fields could be wasted if the future value of these resources disappears. Oil companies can write off the cost of establishing production from an oil field against tax immediately rather than over the lifetime of the field.

Back in November 2009, Andrew Mitchell MP gave a passionate speech to the Overseas Development Institute pledging to end the Labour Party’s support for fossil fuel projects across the globe, citing support amounting to three quarters of a billion pounds. He was absolutely clear that climate change is one of the major risks to humanity. Yet here in 2013, on the website of the UK Export Credits Guarantee Department, is listed support of $1 billion for Petrobras offshore oil and gas projects.

If the tax revenue from oil and gas was being used by the Treasury to reduce demand for energy through a programme of energy efficiency, then that would be a justification for continuing to develop fossil fuels. However, even the revenue from carbon taxes such as the CRC Energy Efficiency Scheme is not spent on improving energy security for the UK.

So it does seem clear that UK fossil fuel companies do receive significant subsidies which are not afforded to renewable energy, for extremely questionable benefits, except the short term financial interests of the current government and the oil and gas companies themselves.

Whilst renewable energy does not generate an income for the Treasury except for normal corporation tax (which, after tax breaks, is often all oil and gas companies end up paying on the marginal fields which are left to exploit, effectively giving away the resource itself free of charge), it increases UK energy security whilst ensuring long-term lower energy prices for consumers, as well as giving the UK the opportunity to become a world leader in the development of efficient technologies.

By contrast, the fossil fuel extraction industry has a finite lifetime which is increasingly beset by rising costs, technical difficulties and environmental risks, not to mention the obvious geopolitical destabilisation that political reliance on fossil fuel producing countries brings.

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Local Adventure 8: A Tale of Two Hills

Some more photos from walks around Lancashire . . . this time from Winter Hill near Bolton and Pendle Hill (of witches’ fame). They were taken a couple of months back hence the winter light, sorry I’ve only just got around to posting them!

Local Adventure 7

On Sunday went for a walk up through Redisher Woods up onto Holcombe Moor. The weather was cold and sunny, the landscapes were variously lush woodland and desolate but stunning moorland, and more reminiscent of Scotland than the outskirts of Greater Manchester.

The tower is Peel Tower, erected in honour of Sir Robert Peel who came from Bury and invented the police.

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Making A Rocket Stove

There are loads of good videos on YouTube about how to make your own rocket stove, but this is how I made mine.

I used two catering sized vegetable oil tins and a normal baked bean size tin.

First using a strong pair of scissors I cut the top off the first large tin. Better to use tin snips if you have them but good scissors will do. Start the cut by making a hole in the can with a hammer and a sharp screwdriver.

Then I cut both ends off the second large tin and rolled it up to make a narrow tube. I used garden wire to hold it tight.

Then I took both ends off the small tin using a can opener, and using the screwdriver scratched a circle near the bottom of both the big tin and the narrow tube. The circle is nearer the bottom of the tube than the tin because the tube sits inside the big tin to form the flue.

I cut a circular hole in the big tin and the flue, and put the small tin through both. Then I filled in the outside of the flue with wood ash from my wood stove, to insulate it.

Finally I cut a hole on the middle of the bottom of the second large tin which was left over, and made a lid for the stove. I cut some 1cm notches in the top of the stove so the lid would push down into it a bit, and then hammered down the edges to keep the lid in place.

Finally I sprayed the stove black with woodstove paint. Voila!

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Log In

We received our first delivery of seasoned logs for the wood stove since February yesterday. We have survived since then on solar power for hot water and some scrounged logs for the odd fire.

These logs are lovely though, cut to just the right size and dried so they burn beautifully!

Local Adventure 6

On Sunday I decided to cycle up to the Entwistle Reservoir again, as in stark contrast to last time the weather was absolutely glorious, clear blue skies and bright sunshine, so I thought I could get some decent photos.

After getting to the reservoir and going for a short stroll in the woods, the spirit of adventure possessed me and when I got to the A666, instead of turning left and heading back towards Bolton as I did last time, I turned right and headed up towards Darwen.

The countryside was just breathtaking, and I carried on until just South of Blackburn, halfway to Oswaldtwistle and turned right to head back towards Bury over the West Yorkshire moors.

The whole trip must have been about 40 miles, it took me 5 hours and when I got home I was absolutely exhausted. But it was an amazing experience, I really feel a connection with all of those places which I have never felt going through them in a car. And a real sense of achievement at actually doing it on a bike! Some of the looks I was getting from motorists going over the tops were quite incredulous, and I found myself thinking, I bet you couldn’t do what I am doing, dependent on your metal box with wheels!!

I’m still recovering today, both from the exhaustion and the mental high. Stunning!!

I’ve put up a couple of maps but my iPhone battery died eventually, I had to record it in two parts and I didn’t get to record the final leg of the trip.

In the first and last pictures you can see Scout Moor wind farm in the distance, from two completely different directions!!

On the Buses

Just seen one of the new hybrid electric buses in Manchester!

Stone Free

Had a great day yesterday at Transition Stone’s “Festival of Possibilities” – the location was the very beautiful Hayes at Stone, a big old house in acres of picturesque grounds which is home to a small community of Transitioners giving a whole range of workshops, everything from bread-making, bicycle maintenance and diesel engine vegetable oil conversions to micro-hydro and woodworking using a home made pole lathe. I gave my Green Cottage presentation as a contribution.

I don’t know if it was a combination of the venue, lovely weather and kindred spirits or the home made cake, soup and crusty rolls, but the whole day was really heartwarming and gave me a real lift. It’s not that often I find people who are really on my wavelength but this was one occasion. Thankyou Transition Stone for a great day and a big success, all power to you!!

Love the home made geodome 😉

Stealth Food: Update 8th August 2010

There’s loads of stuff ready for eating already from the Phase 2 planters, even though they were only planted a few weeks ago!!

There’s tons of rocket to be had, and I pulled a lovely bunch of radishes on the way back from town just now!!

Just Who the Hell are We Kidding?

I was reading this Treehugger article yesterday:-

http://www.treehugger.com/files/2010/07/would-simply-slowing-down-travel-shipping-help-kick-oil-habit.php

and it occurred to me just how much in denial we are, even people who think about ‘green’ issues. Even though we know the severity of the problems facing us as a species – climate change, ocean acidification, peak oil, the impending food crisis which is driven by all of these and an expanding population – we in the historically rich West are still trying desperately to cling onto the notion that we are in some way special and are allowed the use of a disproportionately larger share of resources than everyone else, because we are privileged by birth and have a right to these extra things.

It has been suggested that a sustainable average carbon footprint for a world citizen, which would minimise the damage from climate change and allow the poor nations of the world access to energy resources to lift themselves out of poverty is around 2 tonnes of carbon annually:-

http://timeforchange.org/global-warming/carbon-footprint

The world average carbon footprint is currently around 4 tonnes annually. The average carbon footprint for industrialised nations is around 11 tonnes annually. The average carbon footprint for a citizen of the USA is 19 tonnes per person per year, and for a UK citizen 9.4 tonnes per year.

So currently the world average carbon footprint is double what it needs to be. Now in order for the current average figure to fall, it is obvious that somebody needs to cut their energy use.

Only a psychopath would suggest that it should be the poor nations of the world who should cut their energy use – in fact, we should really allow for people who currently emit less than 2 tonnes of carbon to use more energy to raise their standard of living, and have resources to help them adapt to climate change, as it is largely the poor nations of the world who are most threatened by the effects of climate change.

So it therefore follows that it is we, the rich citizens of the world, who need to cut our energy use, so that the poorer countries can have access to more resources, lift themselves from poverty and limit their suffering under increasingly unpredictable weather patterns.

The Treehugger article refers to ‘survivalists and neo-Luddite hippies’ as people who have traditionally concerned themselves with the converging crises in the world, as well as the military who see the threat, and suggests that we also should be concerned. But the article then goes into a kind of negotiating mode which seeks to preserve our way of life first and foremost, whilst at the same time urging us to at least consider some concessions to sustainability. We should think about longer stays when we fly long-haul, or at least flying less often. But if we can’t manage this, it is suggested, then no matter really, as not everyone is able to make these choices in the hectic schedule of their rich first-world lifestyles.

I really wonder about this.

If we take as read that people who emit less than 2 tonnes of carbon annually are likely to be living in poverty, and should have the right to use more energy to lift their standard of living, it therefore follows that the current world average carbon footprint will rise, unless people with a large carbon footprint cut theirs by an equal amount. So just to stay still, we rich world people need to be cutting our energy use.

But staying still isn’t good enough – the world average carbon footprint needs to halve to 2 tonnes to be sustainable and fair. And it is relatively few of us who use an extremely disproportionately large share of the planet’s resources. So this really does mean we have to get cutting.

The issue of international tourism is a real bugbear for me. The Treehugger article extols the virtues of being able to see vistas, eating food in the country where it originated and broadening one’s experience of the world – which is all well and good, for those who can afford it. But 95% of the world’s population have never even been on an aeroplane. And unless we are suggesting that those 95% of people are inevitably and irretrievably spiritually stunted because of it – an obviously ridiculous and patronising suggestion which belittles the power of the human mind, making it reliant on mechanical transport for growth – it therefore follows that air tourism is a pure luxury, an activity undertaken by a tiny wealthy elite who seek to justify it to themselves in terms of spiritual development in order to avoid confronting the unavoidable fact that actually, in a crisis, it is completely unnecessary and utterly dispensable.

At present, the cost of air tourism is around 3% of the world’s total annual carbon emissions. However, that 3% of emissions is generated by a mere 5% of the world’s population – a 5% which currently enjoys energy use emitting an average of 11 tonnes of carbon annually. And this average, for industrialised nations, is actually made higher by the small minority of the population even of developed countries who use air travel. So that 3% of emissions is on top of and in excess of the highest rates of energy use in the world by this very same elite already.

Tourism itself is not environmentally or economically benign. As well as the environmental damage from its contribution to climate change and ocean acidification, there is more localised environmental damage in the destination countries. Whilst European cities are geared up for high-consumption tourism, many poorer countries are not, and in the scramble for tourist dollars, the local populace ends up suffering – from shortages of wood fuel and unsustainable logging in Nepal to water shortages in Indian villages due to aquifers being drained to supply hotels which are luxurious by local standards, but simply what is expected by Western tourists. And increasing the dependence of what were once basically sustainable economies on tourist dollars which are in turn dependent on cheap air travel, at the expense of the long-term integrity of local ecosystems, is not helping people in the long term. Tourist dollars help to prop up corrupt political regimes such as that in the Maldives, whilst local people are exploited and local islands out of sight of the tourist destinations are used as dumping grounds for tons of unprocessed rubbish.

When we are booking our foreign holidays, we may say to ourselves, well, we are ordinary working people, we are not rich and do not live in a palace, so what’s the harm? But in reality, our levels of energy consumption compared to most people in the world absolutely do make us rich beyond the wildest dreams of large swathes of the global population. And in fact, as large communal living spaces, palaces are potentially a more energy efficient mode of living than individual dwellings. If more people lived in palaces, it could be a good thing.

We in the first world really need to get the scale of the challenge into perspective. That return flight from the USA to Europe will emit 3 or 4 tonnes of carbon. And those fossil fuel resources are then gone, they can’t be used by someone elsewhere in the world to lift themselves out of poverty. If we pull out all the stops in the rest of our life, go vegetarian, install solar panels and recycle everything, we might only cut our carbon footprint by that exact same amount. Standing still and denying irreplaceable resources to people struggling in poverty is NOT ‘being green’.

So I would implore the reader: climate change and its related crises are not a game. The planetary atmospheric system is increasingly playing hardball with us, and what we do today will come back tomorrow tenfold to bite us. Billions of people could die from starvation and drought. Ecosystems which took hundreds of millions of years to evolve and develop a delicate homeostasis could collapse. Whole species could – wait, change that – are becoming extinct. Nature has no concept or consideration that it is reasonable for rich Westerners to have holidays in the sun, and does not make any allowance for it; that is a consideration which we afford ourselves, and fortunately for us it is others who have to make the necessary sacrifices in order to accommodate us.

There is another option: don’t fly. Be proud to take your place standing side by side in solidarity with the 95% of people who will never experience this highly polluting privilege. There is no shame in it. Even if you can’t avoid flying in the course of your work or to see family, when it comes to holidays you have a choice. And it will only be exercising that choice which as rich Westerners is ours only, that the difference will be made.

The responsibility to act lies with us, and only us, the citizens of the rich world. And if we do not, we are condemning the poor of the world and the habitability of our one and only home planet for the sake of a holiday in the sun.

Exploitation of the poor by the rich has been the rule for so much of human history – but it doesn’t have to be that way.

Let’s not kid ourselves.

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